Knowledge.

Honesty.

Care.

Category Archive: Uncategorized

  1. Anchoring Away: How Much Should You Pay For Something?

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    How do you know how much you should pay for something? How do you know what’s a deal and what’s a ripoff? You need some sort of reference point…a cue to help you evaluate.

    verschil-tussen-reuma-en-artrose-blijkt-onduidelijk.jpg

    The anchoring effect is a cognitive bias that influences you to rely too heavily on the first piece of information you receive. Stores use it all the time to convince you to buy.  So if you’re shown a pair of jeans for $100 and then a similar pair for $150, then the pair for $150 seem expensive. But if you’re shown a $300 pair and then a $150 pair, the same $150 jeans seem like a steal by comparison.

    Remember when J. C. Penney introduced “everyday low pricing?”  They wanted to eliminate coupons and instead create a best price all the time atmosphere.   Too bad they weren’t aware of the power of the anchoring effect. When sales slid bigtime, they got the message. Customers need that anchor number to inform them that they are getting a bargain.

    All buyers, no matter what they are purchasing, want to know these two things:

    1) What does it cost?

    2) What do I get?

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    Potential customers believe if they know what they’re getting in exchange for the money they’re giving up, they can choose whether or not the product is worth it. Here’s the problem: human beings aren’t rational buyers.  Whether or not something is worth it depends on several factors. Most importantly, it’s decided by our expectations. Expectations are set by anchoring.

    Dan Ariely did an experiment on pricing for The Economist.  When he surveyed 100 MIT students about those pricing options, Ariely got these results:

    Subscription type

    Cost for a year

    Percentage who chose it

    Web only

    $59

    16%

    Print only

    $125

    0%

    Print and Web

    $125

    84%

    Why did the Economist even bother with that $125 print only option? Ariely conducted a second survey that shows why. In the second survey, Ariely removed the $125 print only option and asked a separate set of 100 MIT students what they would choose.

    Here’s what happened:

    Subscription type

    Cost for a year

    Percentage that chose it

    Web only

    $59

    68%

    Print and Web

    $125

    32%

    The mere presence of the print only option even though no one chose it prompted a much higher percentage of people to choose the more expensive $125 print and web option. The difference would have amounted to 43 percent more hypothetical revenues for the Economist. Print and web for $125 seems like a much better value when it’s anchored by a $125 print only option and a $59 web only option.

    So if you are engaged with a client, should we artificially inflate our prices and let the anchoring effect work its sales trickery?  Um, no.  There is an offsetting sales principle called price integrity which is crucial for building trust and continuous business relationships. We shouldn’t present a higher price without demonstrating more value and we shouldn’t show a lower price without a reduction in benefit.  In both directions, clients should expect and see integrity in the price.

     

    I Know the Market: Trust Me

    In an experiment conducted some years ago, real estate agents were given an opportunity to appraise the value of a house that was actually on the market.  They studied the house and the comprehensive booklet of information that included an asking price. Half the agents saw an asking price that was significantly higher than the listed price of the house; the other half saw an asking price that was lower than listing.  Each agent was asked about a reasonable buying price and the lowest point at which they would agree to sell if they owned it.  

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    What factors affected your judgement?

    Remarkedly, the asking price was not one.  They took pride in their ability to ignore it.  Wrong, the anchoring effect was 41%.  That’s a $82,000 difference between a $200,000 house and a $400,000 house assuming it’s the same house just listed differently.  A group of business school students with no real estate experience was 48%.  The only difference was the students admitted to being influenced and the professionals did not.

    Does that mean we should disregard the anchoring effect altogether?  If we are providing value, we should be aware of the anchoring effect to help us deliver the highest level of benefit for which our clients are willing to pay. This might mean presenting solutions in a good, better, and best approach for a particular need. Our best option is our anchor and provides the most benefit to our client. Consequently, it has the highest price. If our client is unable or unwilling to purchase this solution, then we have established a point of reference for both benefit and price, allowing us to adjust down our solution until we fit the highest level of benefit with the highest acceptable price.

    Peoples’ objections to price rarely have anything to do what is or is not fair. They come from a place of inexperience and emotion.  The client simply doesn’t have the background you have and relaying the message can be difficult.  As someone who is trying to do the best thing for the client you are torn between the elements of price integrity and getting the business.  You have to avoid paralysis by analysis that a prospect can slip into and present your solutions in a manner that gets them to act.  If done properly it is a win for both sides.

  2. How Many Light Bulbs Does it Take to Screw (In) the Client?

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    Here is the good news.  Your bankers, money managers, attorneys, insurance agents, fee based planners and CPA’s and other financial experts probably know more than you do.  This means that they can help you solve problems that would have been tough to solve on your own.

    Here is the bad news.  You have to find half a dozen of these type of people to completely optimize your financial profile.  And that’s only if the half dozen you find are good at their jobs.

    I feel a rant coming on.  I can give you examples out the wazoo of how asking simple questions of my clients has lead to discovering major gaps in planning.  For those of you who do not know me, I am really just an insurance salesman… and I really just mean life insurance as that makes up the bulk of my business.  Over the years, I have learned a little bit about everything my clients could do to complete their financial framework and do so, the best way.

     

    Best?  Yes, that is a good enough word for it.  For me, it started in my mid 20’s finding the best insurance for my customers all over the country who found me through the internet.  To me, this meant getting the coverage that perfectly serves its purpose at the best price in the market.  Not many insurance agents sell insurance this way because they don’t know any better or don’t care.

    In order to figure out how to discover the purpose of the coverage, I had to learn what questions to ask the client.  Most of my questions bleed over to the expertise realm of the other financial pros because I need that info to make the right call.  The more good answers I got, the more curious I became.  Like a 3 year old, “Why?” is a favorite question of mine… and it seems to me that “I don’t know” might be the most popular answer.

    Who is at fault?  Most of the time it is the banker, insurance agent, attorney, money manager, and CPA.  The reason they are to blame is that they refuse to get good at asking questions about other aspects of their clients’ financial lives.  Because of this, the client misses opportunities to learn and improve each time.

    Here are some examples:

    Cpa: Does taxes thinking only about last year and next year.  Does not ask about insurance, or estate docs. and often does not even offer tax planning solutions because they have 200 other returns to do before the 15th.

    Banker: Loan quotas, checking accounts, credit cards.  Some of them have daily calls from the higher up’s who are pushing these products.  The guys on the ground are forced into being short sighted in order to help the regional managers meet their goals.

    Attorney:  Always afraid of saying the wrong thing.  They often refuse to partner with experts in tax, insurance, and wealth management.

    Insurance agents:  Trying to make a sale for a weekly goal, or just plain product pitching.  The bulk of these guys are very weak in knowledge even about insurance and especially about other financial issues.  FYI: It takes 3 days to get an insurance license.

    Money managers/Financial planners:  These guys think no financial activity should be considered but through them… And since they often do not know much about insurance, they don’t mention it. Or they don’t because they think it cheapens them.  As if that could be a thing.  I have had conversations with many of these guys who say their clients don’t need insurance.  My response… “Would you put that in writing?”

     

     

    It isn’t as if everyone in these professions are inept at leading their clients down the right path and helping to fully optimize their financial picture.  It is though, that it can be difficult for a client to find the right person for the job.  I meet very smart and successful people all the time who have puzzle pieces missing that one of these professionals above should have caught years earlier.  It isn’t the client’s fault.  Who has time to sort through dozens of potential problem solvers to find the right one?

    I don’t mean to rob you of confidence in the work that some of these professionals can do.  I have seen and continue to see stellar work done by colleagues and competitors.  What I am telling you is that you need to find professionals who know more than their business card would indicate.  Be a smart client.  Do not take your friends or family’s endorsement blindly either.  Ask good, specific questions.  When you get their answers, ask why?  You’ll know it when you find the right person to help you… And if you can’t find the right person, let me know and I will point you in the right direction.

  3. What do Bill Lumbergh and Warren Buffett have in common?

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    I have always thought of fictional Bill Lumbergh as a middle management puppet.  As I reexamine I see him more as a Warren Buffett disciple.  Lumbergh was smart enough to bring in a pair of consultants to analyze his company, Initech.  As part of his introduction of the consultants(the Bobs) to his employees a banner is hung and the buzz phrase is established.

     

    With every decision you make is this good for the company?  



    I don’t think this cinematic excellence pushed me down that path but, now I am one of the Bobs.   My business partner and I have a strong distaste for Michael Bolton music.

     

    As simple as the phrase is we often see making decisions that are good for the company isn’t easy.  Warren Buffett writes about a concept that he calls the “institutional imperative”. The premise is any institution’s inherent propensity to do dumb things simply for the sake of doing them. In his 1989 shareholder letter to investors, Buffett opines:

     

    “I thought then that decent, intelligent, and experienced managers would automatically make rational business decisions. But I learned over time that isn’t so. Instead, rationality frequently wilts when the institutional imperative comes into play.”

    The institutional imperative can take many forms.  

     

    Publicly traded companies who overly focus on the current stock price, often pressuring Wall Street analysts about their investment rating, are all part of the institutional imperative. Focusing on the stock price or caring about Wall Street’s investment rating is counterproductive. This behavior creates a major distraction for company management from focusing on what is important— running the business.

     

    We see it with financial services companies and insurance agencies.  Their top priority is getting new clients.  It is #2 as well.  Is that new client going to be as profitable as an existing client?  Have you maximized your existing portfolio?  Have you as the owner improved your expertise and given the same mandate for your employees?  The focus is on the wrong thing.  It starts at the top.

     

    This seems to be particularly true if the institution in question is a bank. Take, for instance, the industry’s love affair with auto leasing back in the 1990s. For a while, the business generated solid returns. Then, as is to be expected, competition intensified and returns fell to unacceptably low levels. Did most banks curtail originations or exit the business when profits began to dry up? Nope. Most hung on doggedly until profits turned into losses that eventually proved ruinous. Board members should insist on being regularly briefed on the profitability levels of various product lines and market segments, and should encourage management to make any needed changes before profit levels become unacceptable.

    Maybe this is a stretch but, I never would have pegged Bill Lumbergh as a forward thinker.  He clearly had to intuition to bring in a consultant group to better assess his company.  Was he too close to situation to truly gage company efficiency?  Perhaps.  Was he a Warren Buffett protege implementing Berkshire Hathaway’s approach to business?  Signs point to yes.

  4. The Improbability of Practicality

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    I want to have a round table exchange with those few of you all who run across my internet leavings.  Since I was a kid, I’ve had a contempt for things that seemed impractical and irrational.  I’ve also desired to know why these things that seemed idiotic to me were in practice.  I asked often, but received a lot of those answers like… “Because it’s always been that way.” or .. “If it ain’t broke..”


    Here are a few of the impractical things that bothered me as a kid.  Daylight Savings Time, Neckties, Itchy Sweaters, Standing in Lines….


    Let’s talk about neckties for a second.  This article of clothing makes about as much sense as a powdered wig.  Maybe less.  You know what does make sense?  A bib.  Babies and lobster eaters wear those with some measure of success in keeping their shirts clean.  Ties take longer to get around your neck and only guard a small portion of your shirt.  They’re uncomfortable, and restrictive and they cut off oxygen to your brain, which makes you stupid.  I have no concrete proof of the stupidity but I have met many tie wearing dummies.  And anecdotal evidence counts for the purpose of this article.


    Let’s say it takes 2 minutes to tie one and you wear it to work for 50 weeks per year.  That means that you are wasting 500 minutes per year putting on a tie.  Seems pretty dumb to me.  Look up the origin of the neck tie if you don’t know it.


    Here are a few of the things that bother me now…some more than others.  Daylight Savings Time, Neckties, I can wear whatever I want so the sweaters don’t bother me, Standing in lines, Interactions with scripted worker bees, red and green on port-a-potties but not on bathroom stalls (my wife’s gripe), Cranberry Sauce, Car Speedometers, Banker’s hours, Settled science,  Double doors and one is locked, This page is intentionally left blank, Bad Grammar, Backing into parking spots, Irrational fears, vanity, The cable and internet bill creeping up while new customers pay half, talking to the scripted cable company worker bees.  There are many more.


    I better say that there are lots of impractical things (by some measure) that have value, like art and sports, but we accept that because these things entertain and inspire.  And they are fun.  We need fun in our lives.


    Daylight savings time.  What benefit could it possibly have nowadays?  Time is relative, so just pick a number that matches where the Earth is, in relation to the Sun and stick to it.


    Cranberry sauce.  I have no problem with it at all, but why is it only served at holidays?  It actually makes a pretty good “poor man’s currant jelly.”  It’s good on venison and pork.


    Speedometers.  I drive a ford explorer.  I doubt it can achieve 160 mph.


    Banker’s hours.  Let the bankers have those.  Otherwise work should be performed at each individual’s most efficient time of day.  What’s so special about the hours of 9-5 that work must be performed then?  What if you want to get done early or start late so you can do something else in the same day?  Inflexibility stifles productivity. https://www.youtube.com/watch?v=LwDMFOLIHxU


    Settled Science.  During 90% of our recorded history, the Earth was flat.  50 years ago, smoking cigarettes was good for you but cannabis would kill you and make you kill others, 40 years ago, Time and Newsweek printed articles on Global Cooling, yet many people still use the words “settled science.”


    This page is intentionally left blank.  No it isn’t.  It has “This page is intentionally left blank.” written on it.  And why do you hate trees?


    Double doors and one is locked.  Is this a candid camera trap or something?


    Backing into Parking Spots.  How could this possibly make sense unless you are planning a quick getaway with your stolen merch?  These people are like the ones who are lurking around the parking lot for a better spot.  For what?  Are you planning on buying an anvil?  Because if you are trying to save time, well, you aren’t.


    We don’t have to accept any of this “that’s just the way it is” bullshit.  We can eat ice cream for breakfast or have a beer at 4:49.  We can make changes to things that make no sense to us or just ignore them.  Every time I pull into my driveway, I wonder why the hell I bought a house that has 8 different roof lines.  I don’t recall having a few thousand extra dollars burning a hole in my pocket that I couldn’t wait to spend on impractical architecture, but here I sit.

     

    Tell me about the things that make no sense to you.  And let’s talk about how to change them.
  5. Why Aflac Agents Are Throwing Away So Much Money

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    Ladies and Gents of Aflac, first let me say that you are some of the most fearless, hardest working people in the insurance business.  I really like being around you all and I respect you.  If you have made it through the first couple of years and are making a good living then you’ve dealt with enough rejection to make a lesser person suicidal.  It also means that you have a gift.  You understand people and you know what motivates them.


    Recently, I did some work with an owner of a local company that has about 50 employees.  As I was asking about their benefits, he mentioned that he had an Aflac agent who had been servicing the company for a couple of years in addition to the group health broker.  The company owner seemed to like both the health insurance broker and the Aflac agent.  There were a couple of employees who had made claims and received benefits, which definitely makes the risk feel more real to those who were not participating in any of the Aflac plans.  This meant that the agent was able to get back in there and enroll more employees the next time he was through the door.


    The business owner, who is generally more accessible and friendly than many of his peers in business had even sat down with the Aflac guy, though he told me that “they really didn’t have what I needed.”


    So let me get right to the point.  What he did need was a simple review of his current personal insurance, some legacy planning suggestions and some help in identifying a business income risk due to loss of key people.  All of this took me very little time to accomplish and the result was great client satisfaction and much more commission than was earned by the Aflac guy….about $44,000 to be exact.  I am not telling you this to brag.  I consider myself lucky that the Aflac agent did not have the tools to get this done.  He certainly had the relationship, which is the hardest part.


    So if this was so easy to accomplish, then why didn’t the Aflac agent do it?  There are 3 simple answers to this question.


    1. He did not understand the potential.  In a 50 person company, the Aflac agent usually only focuses on the rank and file employees and what they will buy.  Each employee may be a potential of $200 in commission.  Get 15 people to buy from you and you’ve had a great day.  What you’re missing is that the earnings potential is easily 10 times that amount if you understand where to look.


    1. He did not know the next few questions to ask.  And this is simply because he never learned the next few questions.  Aflac agents are independent, which means they can sell other company’s’ insurance products.  But, how would it benefit Aflac to train their sales force to sell something that Aflac doesn’t have?


    1. No marketplace for the higher end buyers.  Contracts with the right carriers are easy to get.  Wholesalers are falling over themselves to give away brokerage contracts that give you access to the whole world of Life and Disability carriers.  They are not all created equal.  Some come pretty much bare bones, while others come with a ton of great service.


    You may be asking… Why would he reveal all this?  The reason is that the life insurance industry is so under-served that I decided to build a new consulting program, just for Independent Aflac Agents.


    We have already built 2 successful platforms for Wealth Managers and Property and Casualty agents.  Even though this is more specifically targeted, I already know this platform has the most revenue potential of the three.  This is because of a proprietary formula we use to measure measure income potential.  Aflac agents consistently score a higher number. The average lost potential revenue is well over $100,000 per agent.  Hey, it’s not all about the money either.  Each dollar you earn can be traced back to a person you helped.


    Use this link http://www.meetme.so/insuranceprofessor1 to sign up for a spot on my calendar. We will have 20 minute call where I will tell you how the formula works. I will also reveal some of the strategies my clients are using with great success.


    P.S.  This program is for experienced agents only.  We ask that you have a minimum of 1 year experience before signing up for the call.


    P.P.S.  One of the first questions I am often asked is, “Do you still sell insurance?”  The answer is YES and I do not plan to stop.  Here is why.  Most sales coaches, trainers, consultants gave up a career in sales to teach.  The problem is that trends change.  What worked 5 years ago may not work today.  I stay in the business because I like it and so I can keep my material fresh and current.


    Kind Regards,


    Justin Stainback
    Insurance Professor
  6. Maya Angelou, Sales Genius.

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    I have been thinking about some of my consulting clients who seem to have difficulty separating the client’s desire for information from their own.  Some of my consulting clients are natural sponges of information.  This is what attracted them to us in the first place.  What I see happening sometimes is that we are focusing too much on information and not on how the client feels.

    We all have clients who place a lot of value on the experience of learning something that they think they would not have learned from another salesman.  In this regard, the scarcity of this information is what makes it valuable.  But, once trust has been earned, spending more time getting deeper in the weeds gives you a diminishing return.

    A client can only retain so much, so giving away more than a practical amount of information can end up reducing your chance to make the sale.  This amount of information is different for everyone.  Five minutes of education may be perfect for some clients where others need thirty minutes or more.  I would contend that very few people ever want or need more than 45 minutes of solid information to decide to work with you.  I personally try to limit the info dump to around 15 minutes.

    But why do people really buy from you and keep on buying from you?  They buy from you because of the way they feel when they interact with you.  Maya Angelou said “I’ve learned that people will forget what you said, people will forget what you did, but people will never forget how you made them feel.”

    Did you know it has been proven that Doctors with good bedside manner have healthier patients?  This is because anxiety is so bad for you.  Doctors who you like, lower your anxiety and the ones you don’t like raise your anxiety.

    So what is the best way to make your client feel?  If someone pinned me down on it, I would tell them that i want my clients to feel at ease.

    Remember though, that we want the clients to take action.  It is our job to make that happen.  So we want the client to feel at ease before, during and after taking action.

    -Inurance Professor

    https://brevityconsult.com/

  7. Empathy and The Golden Rule in Selling

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    Empathy and The Golden Rule in Selling

     

    I’ve been exploring the ideas of Empathy and The Golden Rule in selling.  I think that the professional salesperson has to demonstrate one and abide by the other in order to have the right kind of career over a long period of time.  

    empathy

    To be empathetic is to have the ability to feel what someone else is feeling or to recognize another’s emotions.  This ability is essential to doing good business if you are in sales.  The very best salespeople are only inhibited by sales scripts because they have the ability to figure out each individual buyer.  We all know the classic and very trite car salesman line…”What’s it going to take to get you into this car today?”… Well, the very best salespeople can see through the client’s eyes and walk in his or her shoes and thus could just ask “What would it take for me to buy this car today?”

     

     

    There is a perfect kind of language that raises the odds of selling to each individual person or couple.  The most empathetic salespeople can figure it out.  This comes naturally to some salespeople, but for others it must be studied.  Just as a Psychologist spends 10 years in college to be able to relate to people, a salesman can study enough material to learn empathy.  There are seemingly endless books on the subject.  You have to be able to understand what your client is feeling in order to pick up on the subtle clues that are like a breadcrumb trail that leads you to the close.  

     

    So here’s the danger to the client.  Some of the best salespeople can show empathy but be completely amoral.  You know these kinds of salespeople, or at least you’ve seen them in movies like “Boiler Room,” “The Wolf of Wall Street” and “Glengarry Glen Ross.”  If you haven’t seen these movies, go and watch them all.  These people are real and they are out there folks.  I once heard a guy say “I didn’t get in this business to save the world.  I can do that when I have money.”

     

    Empathy and The Golden Rule in Selling – Video

     

    The most skilled salespeople can sell inferior products to clients.  They can also sell a good product at an unfair price.  What can happen is that a person can be so well trained at selling that the client would literally buy something that makes no financial sense.  For example, my business is life insurance.  I have worked with many clients over the years who bought policies for 30+% more than market cost even though the agent had access to lower prices for better products.

     

    Let’s talk about why The Golden Rule is so important.  As you hone your craft, you have to keep in mind that you must always do the right thing for the client.  For some of us, it isn’t hard to always do the right thing.  It just comes natural.  Others might be tempted by greed.  Some find ways of spinning their own truths or rationalizing to make themselves feel better about what they choose to sell.  You may be able to get away with making a few sales this way, but it will catch up to you.  A reputation of being a salesman of low character will directly affect your income in a way that you’ll never make up for with sales skill.

     

    If you plan on making a career out of selling, you must blend these two important elements.  You have to be able to understand what your client wants and needs and be able to convince them to buy.  You also have to do so in the most scrupulous way.  One without the other doesn’t work.

     

     

  8. Perspicaciously Simple Speech

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    Perspicaciously Simple Speech

    Does your sales pitch sound like mixture of Pig Latin and a Dennis Miller comedy rant?  If so, you’re probably leaving business on the table.  Keeping it simple is the key great communication.

    Some salespeople insist on using every brain cell to craft the perfect sales pitch.  They design explanations for the logic and reason that supports buying their product using YouTube footage from the 2012 Scripps National Spelling Bee.  While it sounds great in their heads, essential information is not sinking in because the client’s brain is in turmoil.

    simple

    One of my favorite clients is a well aged Italian fellow who is a no nonsense, shrewd, somewhat intimidating self made millionaire.  About 10 years ago, I sold him the first of many insurance policies for his large estate planning need.  Even then, I knew more than most, but prepared for several hours for the meeting so I could pull back the curtain to explain to him all about the inner workings of the policy options I was recommending.  I also talked about ownership options, premium financing possibilities and the like.  Thankfully, he liked me just enough not to boot me from his office but instead scolded me.  “Stop!,” he said sternly, “I can tell you know what you’re talking about, but I’m not getting it.  Start over and explain it to me like I’m a child.”  Maybe I shouldn’t have put that in quotes since I edited all the swearing, but he was dead right.  I felt about two feet tall after he snapped at me.  I was wasting his valuable time.  He really only needed to know the essentials.  I gathered myself and gave him the info using simple language and sold him that first policy.  From then on, our meetings rarely lasted more than 20 minutes because I condensed all the information for him into its simplest form.  Wasting his time could have resulted in him changing agents or my waking to find a severed horse head in my bed, or both.  I have learned a lot as I have worked with him and his family over the last several years and I value those lessons.  Here are a few:

    Drop the industry jargon.  Just because the person across from you is nodding his or her head, that doesn’t mean they understand what you’re saying.  If they leave to “think about it,” it might be so they can google some of the words you were using.

    Use simple speech.  There’s no reason to use big words in a sales meeting.  It makes you sound like a phony.  Studies have shown that those who use large academic words  are regarded as having lower intelligence.  In other words, trying to sound smart makes you sound stupid.  By the way, Guetapens was the winning word in the 2012 National Spelling Bee.  Ironically, Guetapens could be used as a metaphorical substitution for “Sales pitch.”

    Focus on the result.   Mr. Client, buying my product will make you happier, healthier and wealthier.

    “If you can’t explain it to a six year old, you don’t understand it yourself.” – Albert Einstein

  9. ROP Term, The Worst of all Life Insurance Policies

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    ROP Term, The Worst of all Life Insurance Policies

     

    I think I will get a little flack from this, but I’m feeling the need to blow the whistle on a life insurance product that is still being pushed by a lot of insurance agents out there.  I can find some positives in just about every kind of life insurance product, but right now, this is one that makes no financial sense.  In the past, this product design had some merit for some people and I have seen it work and sold it myself.  New insurance regulatory changes in actuarial guidelines have come through that make this product perform poorly.  Today, this product only makes up about 2% of term insurance that is sold, but I think it would be much less if the consumer knew the math behind it.  

    ROP term

    First, let’s examine why a consumer would find it desirable enough to buy.  In simple terms, loss aversion is the reason.  When we hear the salesman say “How’d you like to buy an insurance policy that gives you back all your premiums if you don’t die?,” it’s like music to the ears.  Naturally, this seems like a good deal and if the price is palatable, it could seem like the way to go.  That’s only if you didn’t have the rest of the story.  In a way, the sales line above is illustrative of the kind of doublespeak that gives life insurance salesmen a bad name.  Let’s see the numbers first and then we’ll adjust the sales pitch a little and see how it sounds.

    A 35 year old male can buy a $1,000,000 20 year level term policy at “Preferred” for about $600 per year.  A Return of Premium product would be about $2,500 per year.  At the end of 20 years, the entire $50,000 that was spent over that time would be returned to the policy owner.  But, if we invest the $1,900 per year difference, we only have to earn a 2.8% return over 20 years to create the $50,000.  If we achieve an 8% return with the same $1,900 per year over 20 years, we end up with $86,000.  So what is the opportunity cost?  On the surface, it looks like the opportunity cost is $36,000.  But, that isn’t the whole story.  In a ROP product, you have to make it to the end of the policy to get all your money back.  So, if you change bank accounts and your policy lapses, then you’re just screwed out of most or all the money you put in there.  You cannot actually calculate the opportunity cost of buying this type of policy, but it’s greater than just the interest rate difference.  Some might argue that the return in these kind of policies is guaranteed, unlike stock market returns.  This is true, but most who are buying this are in the younger ages and can take on the risk.  Even those who are skeptical about the stock market can outdo the ROP’s guarantees with annuities from the same company that is selling the insurance policy.

    I ran several scenarios and was able to find a few age/rate classes that could get the return into the low 3% range, over 20 and 30 years.  Many were in the mid 2% ranges.  I can’t see how inflation rate returns could ever be worth tying up any amount of money for that length of time.

    Here’s the adjusted sales pitch.

    “How’d you like to buy some well priced term insurance, plus tie up an extra $2,000 per year for the next 20 years at inflation rate returns, contractually guaranteed as long as you make that payment faithfully for the entire 20 years, otherwise we keep it.”

     

     

  10. The Puppy Mills of the “Financial Service” Business

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    Have you met any of these young go getters with their do-it-yourself bow ties, new shoes, briefcases, and sunglasses dangling around their necks?  Be careful Aunt Suzie.  They’ll corner you and awkwardly fumble their way through their best attempt at a sales presentation and guilt might just drive you to buy a bad version of something you sort of need.  How excited they must be, beginning their short lives in the “Financial Services” business through internships with the big boys of the Life Insurance business?

    I’m sort of kidding.  You’ll forgive me for my tone, won’t you?  The tragedy is that these young men and women, if taught properly, could be our next generation of real professionals in insurance.  And the industry needs them.

    I don’t think it’s a secret that no more than 1 out of 10 people (of any age) succeed in the Life Insurance business.  I recently read an article written by an AXA career agent who said he was one out of three remaining from a starting class of a thousand.

    I see two major problems that are keeping these recruits from succeeding.  The first problem is that these people get lured in under the guise of “Financial Services” meaning something other than Life Insurance.  Eventually, they figure out that the future set for them is not making a fortune by managing multimillion dollar portfolios, but selling the same 3 life insurance products to everyone.  By then, these agents have seeded their hierarchy with a few cases that will feed the beast for years to come.  What bothers me is that the system is really set up this way on purpose.  In other words, one of the marketing strategies of some companies is to recruit the family and friends of the eventual client.  

    The other thing that keeps new recruits from succeeding is that they have to start selling to clients too soon.  What’s normal is on the job training where the new agent is sent out to set meetings with as many people as possible within the first couple of weeks of being licensed.  Understandably the recruit fails to sell most attempts (other than Aunt Suzie).  This is what I call the Win Win Weeding Process.  The agencies are happy with the business they get and happy to have hired the few who make it.  There needs to be a much longer training and mentorship program where the recently licensed agents can spend their time learning while getting paid fast food type wages.  With few exceptions, I would say it would be smart for most new agents or financial advisers to stay away from clients for the first six months.  This time should be dedicated to sponging up as much knowledge as possible.  But, Imagine a recent college grad who is considering a career path.  How would recruiting work if the only promise you could make is that as a new agent, you’ll barely scrape by for the next couple of years and then maybe begin earning a decent living and if you bust your ass, you’ll achieve a 6 figure income in around 5 years?  That just wouldn’t gather much attention from most young people who are sick of ramen and ready for kobe beef.  Well, this kind of dedication and suffering is good enough for doctors.  Maybe that’s what these young people need to know.

    Here are the facts.  Life Insurance is a good business.  You can be your own boss.  Six figure incomes are the norm for people who stick it out and learn all they can.

Brevity & Associates

Brevity & Associates